Tuesday 22 October 2019

Banks give off positive signals on mortgages

Jim Power

Recent signals from some banks suggest that the mortgage market may be starting to function somewhat better. AIB has pledged to lend €2bn in 2013, and if Bank of Ireland were to lend €1.5bn, that would deliver a mortgage market of €3.5bn this year, without any other players getting involved.

Last year, AIB and Bank of Ireland had a market share of around 85pc, which means that the other players such as KBC, Permanent Tsb and Ulster Bank did not do very much in the market.

Some, if not all, of those other institutions are suggesting a more pro-active approach to mortgage lending this year, so perhaps the mortgage market could top the €4bn mark during 2013.

It is not possible to envisage any recovery in the housing market against a background of lack of credit availability.

The hope is that in 2013, the lack of credit may not be as big an issue as in recent years, but notwithstanding prospects for some growth in mortgage lending, it will remain tightly rationed until the banks address mortgage default, negative equity and the massively unprofitable Tracker Mortgage legacy.

There is still a distance to travel before the mortgage market starts to function effectively again, but at least some progress is being made.

Mortgage lending expanded strongly in the final quarter of 2012.

A total of €999m was lent during the quarter, which represents strong lending relative to what has been seen over the past three years.

The mortgage market totalled €2.64bn for the full year, which represents an increase of 7pc on 2011.

Lending to first-time buyers was by far the biggest component of the market both during the final quarter and for the full year, accounting for over 51pc of the total for the full year.

No big surprise there, as anecdotally it has been clear that first-time buyers have been the preferred choice for any institutions who have been prepared to lend, not least because they are not burdened with a legacy of negative equity, tracker mortgages and unsustainable debt, unlike many borrowers who want to trade up or down in the market.

Lending during the final quarter was 56.3pc more than the same quarter a year earlier, but the big question is if this surge in lending is the beginning of a trend or just a result of once-off or exceptional factors.

In Budget 2012 the Minister for Finance announced that mortgage interest relief would be applied at a rate of 30pc for first-time buyers who took out their first mortgage between 2004 and 2008; that mortgage interest relief would no longer be available to those who purchase after the end of 2012, and will be fully abolished from 2018; and that for those who wish to buy a house in 2012, first-time buyers would get relief at a rate of 25pc and non-first time buyers would benefit from relief at 15pc instead of the reduced rate of 10 pc.

In Budget 2013, the Minister for Finance did not alter any of those measures.

Hence, there is a risk that the surge in borrowing during the final quarter of last year may just reflect a last minute rush to avail of the favourable tax relief rather than a fundamental change in the manner in which the market is functioning.

Only time will answer that particular question.

Economist Jim Power included the above comments in his address to a seminar organised recently by estate agents Lisney

More recent figures released since Mr Power made this presentation bear out his concerns.

According to figures from the Irish Banking Federation 1,063 mortgages were approved by banks for house purchases in March this year - up 7.7pc from the 987 approved in February but down 8.2pc from the numbers approved in March 2012.

An even larger 17.1pc increase to €186m was seen in the value of house purchase mortgages in March compared to February this year although that value was also down – 6.8pc compared to March 2012 when €199m was lent for home purchases.

Irish Independent

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